GLOBAL – Most fund managers worldwide are optimistic that the global economy will strengthen this year, though corporate earnings in the US and Japan continue to come under fire, according to the latest Merrill Lynch fund manager survey.

The survey, which sought the views of 260 institutional investors around the world, reveals that 87% of those polled put faith in the economic recovery and although most believe the US is still the market with best prospects for earnings growth, there is concern that quantity is replacing quality.

Only 37% of fund managers thought that the quality of US earnings is second to none, compared to 57% in the previous survey.

Says David Bowers, chief investment strategist at Merrill Lynch and overseer of the survey: “Fund managers are no longer taking corporate earnings at face value. Those surveyed said it is corporate America that appears to have lost the most credibility. The perception comes when the US market looks like the most expensive region globally.”

However, it is not other developed markets, such as Europe, that are drawing institutional investors away from US, according to Merrill Lynch’s research, but emerging markets. Almost a third of respondents claimed that this is the area they would most like to be overweight in this time next year. “Global emerging markets remain the relatively cheapest regional play,” Bowers says.

This is supported by the increase in numbers of managers that are prepared to take on more risk. The survey finds that a third of fund managers are actively seeking to increase their risk levels during the next three months, compared with a just a fifth a month ago.